'GSTitis' hits donuts: Jairam Ramesh slams GST amid misclassification row

Jairam Ramesh labels the ongoing GST issue as 'GSTitis,' as Mad Over Donuts faces a Rs 100 crore tax notice for wrongly classifying donuts under GST laws

Congress leader Jairam Ramesh on Saturday slammed the ongoing GST issue surrounding Mad Over Donuts (MOD), calling it the latest instance of "GSTitis”, following similar confusion over popcorn classification.

 

MOD is facing a massive Rs 100 crore tax notice from the Directorate General of Goods and Service Tax Intelligence (DGGI) for allegedly misclassifying its donuts. The chain is charged with paying a 5 per cent GST rate on donuts, claiming they qualify as restaurant services, instead of the 18 per cent tax applicable to bakery items. The matter is now in the Bombay High Court, where a two-judge bench will decide the fate of MOD’s tax liability on March 24, reported The Print.

 

 

Ramesh’s sharp critique highlights the ongoing confusion in India’s GST system, which continues to create roadblocks for businesses. "So much for ease of doing business! This is why GST 2.0 is so urgent," he said in a post on X, pointing to the complexities faced by industries trying to navigate India’s Goods and Services Tax framework.

 

 

The case: Bakery or restaurant services?

 

The case centres on whether donuts should be taxed as bakery products under the 18 per cent GST rate or classified as restaurant services, which would attract a lower 5 per cent tax.

 

Mad Over Donuts, which entered the Indian market in 2008, has challenged a show-cause notice issued by the DGGI, demanding Rs 100 crore in taxes and fines for incorrectly classifying their business. The tax authorities argue that MOD should have classified donuts as bakery products, subjecting them to the higher tax rate.

 

Abhishek A Rastogi, the lawyer representing MOD, argues that donuts should fall under the "composite supply" category of goods and services, which qualifies for the 5 per cent tax rate under the GST law. He explained that the supply of donuts, when bundled with the service of being served or packaged for takeaway, qualifies as a service—just like food provided at restaurants or eateries. This argument is based on the Central Goods and Services Tax (CGST) Act, which defines composite supplies as a combination of goods and services taxed together.

 

"We are saying that the supply of donuts is a service since it falls under the composite supply of goods and services, which is squarely covered in Schedule II to the Central Goods and Services Tax (CGST) Act, Entry 6," Rastogi told The Print.

 

What’s at stake for the food industry?

 

The Bombay High Court’s ruling could reshape how food products are taxed in India. If the court rules in favour of MOD and treats donuts as part of restaurant services, it could lower tax burdens for many businesses in the food and beverage industry, particularly those offering takeaway services. On the other hand, if the court sides with the tax authorities and classifies donuts as bakery products, it could lead to higher taxes for donut chains and bakeries across the country.

 

The case also raises broader questions about the classification of food products under GST, as businesses in the food industry struggle to navigate the complex and often ambiguous tax framework. Whether it’s popcorn, parathas, or donuts, companies are facing the challenge of figuring out how to classify their products correctly, avoiding hefty penalties and tax notices.